Just Get Started Investing

Just Get Started Investing

Over the past few months, I have held some presentations on FIRE and investing in general.

I often find that people have many reservations about investing:

  1. Why should I Invest? “I will rather spend the money today”
  2. What should I invest in? “It seems so complex”
  3. How do I invest? “I don’t even know where to start”
  4. How much should I invest? “I don’t have a lot of money”
  5. How do I invest sustainably? “Capitalism will never be about ‘doing good'”

These reservations are often reasons people don’t get started with investing.

If you don’t invest, you lose precious returns since investing early means that compound interest/returns will work in your favor the longer you invest.

Billedresultat for compound interest

Source: The Motley Fool

For illustrative purposes, the red line is what can happen to your net worth when you invest over time when compounding interest/returns work in your favor. The blue line is if you just save up in the current near-zero or negative interest rate environment (i.e. your net worth only increases with what you save).

You see why it makes sense to get started on the red line journey instead of staying on the blue line journey?

That’s why my new mantra is: just get started investing!

Why you should just get started investing

By getting started you break down the mental barrier of the complexity of investing.

You quickly find out how easy it is to get started and then the ball starts rolling.

Several of my friends who didn’t know a single thing about investing are now investing small amounts every single month (of course, they are fully aware of the risk and only invest what they can afford to lose).

They see the markets go up and down, and they start to get a feel for how little time it requires and what the returns can be over time. They also learn to stomach the ups and downs, which is an important skill.

I always suggest to start out with small amounts to get a feel for it.

As soon as you get more comfortable investing, you can increase the amounts and perhaps also increase the complexity.

If you still have reservations, let me address them one by one:

Why should I invest?

This one is the hardest to give you a good answer to.

I do it to become financially independent which will give me and my family more freedom. I won’t stop working, but I want the flexibility to say no if I don’t enjoy it anymore.

You need to find your own purpose with investing or even your purpose in life – I’m sure more money will not be a disadvantage in achieving it.

What should I invest in?

There are tons of things you can invest in, but since it’s all about getting started we want it to be easy.

I prefer investing in passive stock index funds since it’s simple, easy to get started and gives good returns over time.

If you live in the US (or elsewhere), I would set up an account with Vanguard or Blackrock iShares to invest in a global index fund/ETF. Many people prefer VTSAX with Vanguard.

If you live in Denmark (as I do), I recommend setting up a “Månedsopsparing” with Nordnet and invest in a Danish “investeringsforening” (ETF). You will not pay a transaction fee, and you can find a decent global index fund there (e.g. “Sparindex INDEX Globale Akt Min Risk KL”). You can get started for as little 500 DKK (75 USD) per month.

I am not affiliated with any of these products by the way, and you should always make your own research before investing.

How do I invest?

It’s as simple as setting up an account with a broker and transferring some money. Most of the sites (or financial blogs) will have tutorials for this, so I won’t go into detail as it varies from country to country. In Denmark, I prefer Nordnet or Saxo Investor, but in the US you could create an account directly with Vanguard.

All I can promise you is that it’s usually very easy to get started and is similar to signing up for other websites online.

Once you transfer a small amount of money, test out the platform, invest in an index fund/ETF and see what happens. You might make some investment mistakes initially, but you’ll quickly learn how it works.

How much should I invest?

You don’t need to be a millionaire to invest. You don’t even need to earn above the median wage.

Everyone can get started investing, and this is why it’s so important to just get started.

Once you have invested the first $3,000 in Vanguard (which I know is a sum), the following investments can be as low as $1 per investment. Using some brokers, there’s no minimum investment amount. In Denmark, there’s usually no limit except if you use “Månedsopsparing” that comes with free transactions where the minimum is 500 DKK (75 USD).

The only time you shouldn’t invest is if you need every dollar you earn each month to stay alive 🙂

How do I invest sustainably?

This is one of the themes I have focused a lot on lately.

I believe we all have a responsibility to invest sustainably.

Luckily, more and more index funds that are investing sustainably are being created these years.

You should always check the fund’s screening methods. Some selections are done based on surveys and some are based on thorough research, site visits, etc.

You might need to invest in active index funds to get the very best screenings, but some passive funds are also starting to follow. In the US, an example could be Vanguard’s VSGX fund that invests internationally in 5,000 companies excluding those that do not meet certain standards of U.N. global compact principles and companies that do not meet diversity criteria. In Denmark, an example could be “Sydinvest Morningstar Global Markets Sustainability Leaders KL“.

So the question is now: will you start investing?

Remember that compound interest means you have no time to lose 🙂

6 comments

6 comments

Finore December 29, 2019 - 16:07

You changed your post.

I was trying to say that what you had written previously was not technically correct since savings accounts don’t accrue simple interest (on principal only), but rather accumulated interest just like investing.

In the special case where the interest on a savings account is 0 and investing yields non-zero, then yes… savings accounts will yield a graph of the straight line and investing will yield a curved graph.

Reply
Carl Jensen December 29, 2019 - 20:36

Fair. I’m still not sure why we are discussing curves of lines in a graph – the graph is for illustrative purposes. My point is simple: If you start investing early, you will enjoy the fruits of compound interest/returns for longer (red line), thus making you richer than if you simply put money aside each month and didn’t invest them (blue line). Whether the money is in a savings account or under your bed, it doesn’t really matter for the key message of this post.

Reply
Finore December 29, 2019 - 08:56

The blue line in your graph is straight (no compound interest). The red is curved.

Santander still pays a positive interest rate and if you were to deposit your money there, whatever interest they would pay you at the end of your first period would generate interest as well in the second period. Thus making it a curved line. Just like the red line in your graph.

Albeit not as curved as if you were to make >7% per year.

Reply
Carl Jensen December 29, 2019 - 10:13

I’m not sure why this is a relevant discussion, Finore.

The point of the post is that it is a good idea to invest in assets generating a decent return as early as possible in life.

Savings account are totally irrelevant. You can’t use savings accounts to achieve a decent return at the moment. You mention Santender, but they offer 0.55% in interest (if I remember correctly), which is not even enough to offset inflation. You lose money in real terms every year by putting it in a savings account.

The graph is illustrative of investing vs. not investing. Could I include many different curved lines in the graph to account for the return/interest of all possible assets or savings accounts? Yes, I could, but there’s no need to. The key point of the post remains the same. Just get started investing.

Reply
Finore December 28, 2019 - 19:40

Interest paid on a regular savings account compound as well, so what you’re saying is not technically correct.

Reply
Carl Jensen December 28, 2019 - 19:45

Wow. Have fun building your net worth with compound interest on a regular savings account in a negative interest rate environment 🙂

Reply

Leave a Comment


This site uses Akismet to reduce spam. Learn how your comment data is processed.

You may also like

I use cookies to make sure you have a good experience. You can opt-out if you are not fine with this. Accept Read More

FOLLOW MY JOURNEY TOWARDS FINANCIAL INDEPENDENCE

Sign up for my newsletter
- no spam, I promise!
SUBSCRIBE
close-link